Apr 8, 2009

New Fuel Economy Standards Could Pose Trouble

You think you’ve got troubles? Just try working for General Motors. While one sector of the federal government labored to find solutions for GM’s ongoing financial crisis, another sector was making that effort more difficult. The National Highway Transportation Safety Administration (NHTSA) has issued its highly anticipated and congressional-mandated rulings on the Corporate Average Fuel Economy (CAFE) ratings, and the results are not pretty for GM or any domestic manufacturer.

For the 2011 model year, NHTSA has put together a regulation scheme that will lift the combined car/truck fuel economy index by 8 percent to a collective 27.3 miles per gallon average, but for the first time each automaker will have its own fuel economy targets. Collectively, the new target for passenger cars will be 30.2 mpg, compared to the current 27.2 mpg, while the light-truck mark will go to 24.1 mpg. NHTSA says those changes will save some 887 million gallons of fuel over the lifetime of 2011 model-year cars and trucks while reducing CO2 emissions by 8.3 million metric tons over the same period.

Not only does each manufacturer have its own set of fuel economy targets for the 2011 model year, the 2011 year is the only year for which NHTSA has released regulations. What the agency will formulate for the 2012-2015 model years is anyone’s guess, though if you were a bettor, you might place your money on progressively higher targets as the administration takes aim on both energy consumption and climate change.

The higher standards are particularly bad news for cash-strapped GM and Chrysler for two reasons: First, meeting the requirements will likely cost millions if not billions of research and development dollars, and second, the requirements could well force GM and Chrysler to limit their sales of high-profit larger vehicles while increasing the sales of smaller, less profitable vehicles.
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